MMP Makes Policy Outcomes Less Predictable (Not Entirely A Bad Thing)

The other day I tweeted a brief aside about MMP and how predicting policy outcomes is a lot harder. The policy the coalition partners choose to agree on will be the battleground, and it’s hard to figure out what it will be in advance of the election – NZ Power or manufacturing are the two options at the present time.

MMP enables the median voter theorem’s prediction of policy convergence to jump around significantly based on coalition party preferences.

I suppose I’m trying to get at an idea of how bargaining between coalition partners for “confidence and supply” agreements can lead to more “left field” policy being implemented than the policy convergence suggested by the median voter theorem in a two-party democracy. A multi-party democracy has a lot of different people who think their opinion matters.

When I think about the inaccurate manufacturing inquiry report, is it surprising that the parties are trying to offer policies that would appeal to all of their respective bases? That they’d leverage the biases of the voters amenable to anti-foreign bias and anti-market bias?

Do policies in potential coalitions converge? How can Labour differentiate themselves from the Green Party and NZ First aside from pandering to union interests? How different would a David Parker treasury be from a Russel Norman treasury? Hardly different at all would be my guess.

It is hard to predict which policy the coalition will use as the sticking point for their government. We’ve seen coalition governments break down before – Alliance, NZ First. A confidence and supply agreement is an unstable equilibrium. It’s like a cartel – there’s always an incentive to cheat on the agreement after it is signed. The collaboration on the manufacturing inquiry tells us these parties speak the same language on a lot of things.

One of the reasons I don’t like the idea of MMP and multi-party democracy is that it comes with a lie attached. That lie is that every policy deserves airtime and every policy should be treated with deferential respect. No discussion of trade-offs need be included in the press release. That’s politics.

Maybe, just maybe, any policy proposed by a politician will be necessarily sub-optimal for societal welfare. Maybe, just maybe, a benevolent dictatorship beats democratic government. Monarchies have been responsible for less slaughter than champions of the people – Frederick the Great is arguably one of the greatest leaders of all time, and France would be the greatest country in the world if it wasn’t for the French Revolution.

Eric Crampton adds to my criticism of the manufacturing inquiry report as rent seeking by saying that MPs may share the same biases as their base. I would agree. The way they get worked up in the House on things like the loss of manufacturing jobs is beyond what political theatre requires – there are deeply held beliefs that don’t want any evidence that would lead to revision of these deeply held beliefs to be in the public domain.

I think that is why they deliberately used the phrase “Orthodox economics” in the report as if mainstream economics is something dirty and wrong and doesn’t offer any insight. Sadly, political discourse isn’t an adult discussion, most participants revert to childlike behaviour and name calling. There shalt be no discussion of potential policy pitfalls in the media!

That said, maybe, just maybe, unpredictable policy outcomes lead firms to focus on their own individual situations instead of asking for a handout or changes to the rules in such a way that their preferences impose costs on everyone else. That story would help explain why some manufacturers are doing really well and others have focused on “cost plus” thinking that erodes thin margins when the NZD is high.

It sounds counter-intuitive, but a dysfunctional MMP system where “nothing gets done” is clearly preferable to a government ramming things through under urgency. Oh snap, isn’t that’s what is happening at the moment with things like the GCSB bill? Maybe the troika won’t be as bad as I’ve been predicting because Labour, Greens and NZ First will produce such watered down policy it will have lower costs than if they got what they each wanted!

The manufacturing report suggestions are contradictory. For example, wanting lower electricity prices while neglecting the impact the ETS has had on the wholesale electricity price suggests that they need to read up on how the electricity market in New Zealand works and why water isn’t free.